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WELCOME TO THE Autumn edition of QG Insight. Over two months on from polling day, the question still on everyone’s lips is: What will Brexit mean for my business? Jonathan Parker ponders a future of possibilities and uncertainties for public sector procurement.Sapna Tota-Maharaj cites an interesting case looking at the need to build adequate operational mechanisms into contracts and what can happen when that isn’t done. Robert Burns stresses the importance of choosing your words carefully when writing a settlement agreement, while William Brown highlights the key points in the new CDM Regulations for Northern Ireland.As ever, we’ve enjoyed our socialising and were delighted to sponsor the CIOB Kent annual dinner, while behind the scenes we’ve been working on putting together the best CPD seminars for you. Our ICE Law and Management Course is kicking off in Dublin, Belfast and Maidstone so contact us now to secure your place.
Enjoy!
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No. 44 Autumn 2016
JACOB BRONOWSKI’S COMMENT that “Knowledge is an unending adventure at the edge of uncertainty” has never seemed more applicable in the legal arena than it does following the EU referendum. There are so many ‘facts’, but precious little certainty. So how much can we be sure about?
EU LAWThe EU treaty principles of free movement of workers and goods have for years underpinned the legal and economic relationship between the UK and other EU members. Were this to come to an end it could have a dramatic impact in a number of areas, for example:
Halting the free movement of people could further stretch already pressured sectors such as the construction industry where UK government figures have identified that 12% of the 2.1 million workers come from abroad. The industry has already suffered from labour shortages in recent years and the impact was immediately apparent. A previous shortage in bricklayers lead to a significant increase in rates. Due to the impact on project costs this lead to some architects seeking to avoid brickwork where possible.Goods may become subject to import restrictions such
WHAT DOES BREXIT MEAN FOR PUBLIC SECTOR PROCUREMENT?
as licenses and national price control mechanisms. If realised, these are likely to increase prices of the £221 billion of goods imported annually (2013 figures). This would be compounded by the current diminution in value of Sterling against the Euro.
The same principles are at the heart of the rules governing public sector procurement. So what will happen to the Public Contracts Regulations 2015 which implement the EU’s 2014 Public Sector Procurement Directive in England, Wales and Northern Ireland by essentially ‘copying out’ the articles of the EU directive?The answer is going to depend on the terms of the UK’s exit.
EXIT MECHANISMThe Lisbon Treaty gives a five point mechanism for exit at Article 50. To date it is untried and there is much debate about how it will operate and how long it will take. In short, the UK is required to negotiate an exit framework with the European Council. This process is supposed to take two years. However, leading European Union law professor Michael Dougan commented:“The overwhelming consensus is that these things do not take two years to negotiate, the rough guide that we are all talking about is around 10 years.
“The treaty said that you have two years within which to make your divorce settlement. But the divorce settlement is completely separate from the framework agreement for your future relations with the EU.”And, though under different provisions, Switzerland signed its first framework agreement with the EU in 1972, it is still negotiating.
WHAT MIGHT THE EXIT TERMS BE?This has been a further area of hot debate with little consensus. The three most obvious models are:The Norway modelThis allows the UK to remain a member of the European Economic Area (EEA) as a non-member of the EU. It would permit full access to the single market in return for a financial contribution and such obligations as accepting the majority of EU laws and free movement.The Switzerland modelWhere the UK is a member of the European Free Trade Association but not the EEA. Access to EU
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Robert [email protected]
market is then governed by series of bilateral agreements. This model also has obligations to make a financial contribution and accept EU laws, but to a lesser extent than under the Norway model.The World Trade Organisation model In this scenario the UK would utilise its membership of the WTO to govern the basis of trade with the EU. The WTO favours transparent and competitive tendering for public contracts through a regime that mirrors the EU regime.
Whether the divorce terms follow one of the above models, another such as the Turkish model or a hybrid, there seems a strong likelihood that the deal will exert outside influence on having public sector procurement rules that are at least similar to the current ones since that would align with the requirements of the EEA, WTO or whichever organisation alliances are made through.
CONCLUSIONSThe only thing that seems broadly agreed on is that things will take time. Even if the framework agreement can be concluded in two years it is doubtful that the first thing the government will want to change is public sector procurement, and there seems to be little political pressure in that direction.On top of that we should remember that the Public Contracts Regulations 2015 did not simply enact the bare minimum required by the EU. In fact Part 4, driven by the Lord Young Reforms went some way beyond that and introduced a new level of requirements. That would seem to suggest that the UK government is not only aligned with the EU public sector procurement regime, but seeks to take the same principles further.When all this is taken into account I do not anticipate any significant change in public sector procurement in the coming few years, so don’t throw away those policies just yet.
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THE CONSTRUCTION INDUSTRY is often adversarial and has been formerly recognised as such on many occasions, such as in the Latham Report in 1994 and the subsequent Egan Report in 1998. Despite the positive reforms that followed these reports, few would deny that most construction projects see disputes arise. This is not surprising given that construction projects are usually long-term interactions, which often carry a high degree of uncertainty and complexity. It is impossible for a contract to pre-empt every potential scenario which may arise and to set out a definitive path for resolution. Even if this “super contract” did exist, we would invariably have the usual arguments over interpretation. Often disputes are resolved by formal dispute resolution procedures such as adjudication, and mediation. Nevertheless many still make their way into the traditionally more lengthy and expensive processes of arbitration and litigation. However, it is much more common for the parties to resolve the matter between themselves rather than enter into one of the aforementioned processes. This can be at any point during the dispute and, indeed, the majority of litigations settle in the days coming up to the trial, often on the steps of the Court House. If the parties do reach a settlement, it is wise, and often necessary, to record it in writing. Many of you will be familiar with the type of wording used in settlement agreements e.g. “Smyth & Smyth Incorporated shall pay to Jones &
SETTLEMENT AGREEMENTS – WORDING AND RISK
Jones Incorporated the sum of £100 in full and final settlement of all claims arising under this Contract”.Settlement agreements are often protecting past, present and future interests. Their importance often does not end at ensuring payment is given or received, but extends to limiting future exposure and risk. Sometimes there will be a dispute itself over the terms of the settlement agreement and the Court will be asked to give meaning and effect to the document. For some guidance on this see the case of Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28 in which Lord Hoffman stated:“Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.Subjective intent by either party is not admissible for the purpose of interpretation. In DKH Retail Ltd (t/a Laundry Athletics) and others v SRG Apparel Plc and others [2015] EWHC 3560 (Ch), a settlement agreement went before the Court. The Court was unequivocal in stating that the parties had control over the language which they used in the settlement agreement. As thus, the wording of the settlement agreement was clear and there was no reason to depart from it. This was despite the terms of the settlement agreement being more onerous and wider than those pleaded.In many ways, this is not a surprise and sees the Court interpreting
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Fastest cycle from London to Paris for Cyclists Fighting Cancer because of the amazing work CfC do for cancer patients.He’s done it!! Our very own Jonathan Parker has smashed the World Record for cycling from London to Paris. His time clocked in at 12h 31m, beating the previous record by nearly 9 hours! We are extremely proud of Jonathan and his brilliant work for Cyclists Fighting Cancer. The twin aims of the event were to raise £10,000 for CFC and to raise awareness of the work the charity does helping children who have suffered from cancer. To date, over £11,000 has been raised! You can still donate at www.justgiving.com/fundraising/JonathanParkerL2P.
settlement agreements merely in the same way as they interpret any other commercial contract; by giving the words their ordinary and natural meaning.In Khanty-Mansiysk Recoveries Ltd v Forsters Llp [2016] EWHC 522 (Comm), the parties agreed to settle a dispute regarding invoices. The settlement agreement was drafted to cover any and all claims, whether known or unknown, to the parties at the time of entering into the settlement agreement. Khanty later sued Forsters for professional negligence based on evidence which only came to light post settlement agreement. The Court found Forsters was released from any obligation to compensate Khanty as the release provisions of the settlement agreement were clear and unambiguous. It mattered not that Khanty was not, and could not, have been aware of the existence of the professional negligence claim at the time of the settlement.
ADVICEIt is advised that before executing any settlement agreement both parties carry out a detailed analysis of any further issues or liabilities which may arise; latent defects being the classic example. Additionally, seek to phrase the words of any agreement accordingly, because often a settlement agreement is not just settling the dispute at hand but will be settling all matters past, present and future. So remember to ensure that the wording of the agreement does just that.
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THE LAW REGARDING the Housing Grants, Construction and Regeneration Act 1996 (“the Act”) is well known, but often bears repetition. The Act requires that all construction contracts contain adequate mechanisms for valuation and timeframes for interim and final payments. If no such payment mechanism exists in the construction contract, then the Scheme’s payment timeframes apply to that contract. It has been a longstanding trope of the Scheme and the provisions of the Act that if the contractual payment mechanism is part compliant, then the relevant payment provisions of the Scheme is either implied into and/or replaces those non-compliant terms in the contract. What happens if the contract payment mechanism is part compliant, but implying the relevant payment provisions from the Scheme does not remedy the payment mechanism to make it compliant with the Act? One may think that the entire payment provisions of the Scheme would then replace all of these payment terms, however this is not the case.Manor Asset Ltd v Demolition Services Ltd (Rev 1) [2016] EWHC 222 (TCC) dealt with a hearing for summary judgment by Demolition Services Ltd (DSL), which was attempting to enforce an adjudicator’s decision; and CPR Part 8 proceedings brought by Manor Assets (MA), which claimed that the adjudicator’s decision was unenforceable due to breach of natural justice and sought to determine the correct deadline for submitting a final date of payment. The contract was a JCT Minor Works Contract (2011), later amended to provide payment at percentage milestones of the contract value-after the first milestone of 60% occurs and invoice issued, payment would occur within 72 hours of receipt of invoice. The first milestone
CONSTRUCTION AND COMPLIANCE OF CONTRACT AMENDMENTS IN THE MANOR!
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occurred and the invoice submitted on the 23 October 2015. A ‘pay less notice’ was served on 28 October 2015 and the full invoiced amount was not paid. The adjudicator decided the final date for payment being 3 days after receipt of the invoice was the 26 October 2015. He considered the amended term as compliant with the act as it provided for when the sum would be due (s110) and the invoice was a valid payee’s notice (s110A). The latest date the pay less notice should have been served was 5 days before the final due date, as stated in the contract. This meant that the pay less notice was served late. According to Edward-Stuart J, there was no breach of natural justice as the adjudicator had considered all evidence and the Employer had sufficient time to comment about the timing of the pay less notice. He agreed with the adjudicator’s decision that the pay less notice was late and the final due date was 72 hours after receipt of invoice; however there was an error by the adjudicator in reaching his conclusions. The court noted that even though the amended provisions complied with s 110 (1) and s 110A (1) of the Act, a contract payment mechanism is prohibited to have a deadline for a pay less notice before the date of invoice submission (s 111(5) of the Act). By implying the Scheme’s payment provision for pay less notices into the contract, this would not overcome the prohibited action as the prescribed period for the pay less notice would fall 7 days before final due date. This would also seem to be in contravention to the parties’ intention. The “only solution” appropriate for the “prescribed period” of the payless notice to ensure compliance with the Construction Act and the express amendment would be that the parties “impliedly agreed” this period to be nil or zero. Then the pay less notice could have
only been served from receipt of invoice until expiry of the 72 hours. The adjudicator was correct that no valid pay less notice was given and his decision was enforceable. Therefore, DSL were successful in their application for summary judgment.The Court’s duty is to interpret and apply the contract as the party would themselves. The court has no power to improve the contract, but sometimes an implication would be “necessary to give business efficacy to the contract or to put it another way, it is necessary to imply the term in order to make the contract work as the parties must have intended.” It could not have been the parties’ intention to create an amended clause that would later become ineffective. By impliedly making the prescribed period nil, bearing in mind the rest of the contract, amendment, the Act and the industry, this would make the amendment compliant, ‘practical’ and in line with the parties’ intention.Many possible solutions were present by the parties to the court to correct this compliance issue and suggested afterwards by commentators. One possible interpretation that I considered a strong argument was the parties “impliedly” waived their right to give a pay less notice as this is not necessary to confirm the notified sum. However, the court did not like any of the multiple options presented by the parties as an appropriate solution for this may seem to lack “clarity”. The court r e g a r d e d the express amendments as important terms to the parties and the Scheme when implied should not
change these express conditions of the contract. The Court’s solution is surprising and may be followed in rare occasion. The court would be minded to keep in line with the parties’ express terms and intentions. Thus, if implying a term outside the contract, the Scheme and the Act, can remedy the non-compliance with the Act rather than striking the term as ineffective and replacing with the relevant payment provisions of the Scheme, then this is a sensible solution.
UPDATE: In Bougues (UK) Ltd v Febrey Structures Limited (2016), the judge Mr Jonathan Acton Davis QC, sitting as deputy High Court judge, found that the contract fell foul of s111(5) and the payment notice and pay less notice was not served in time. Here the court agreed that there was a “clear and obvious” error. The court did not follow Manor Assets, as the court was not in a position to imply terms that would contradict the express terms.
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DIARY DATESFor further information email [email protected] LAW AND MANAGEMENT COURSE25 week training programme starting October 2016 in BELFAST, MAIDSTONE and DUBLIN.
DUBLIN12 OCTOBER 2016 – Construction Contracts Act, Cork
19 OCTOBER 2016 – Construction Contracts Act, Limerick
BELFAST27 OCTOBER 2016 – Choosing your procedure
24 NOVEMBER 2016 – An Introduction to adjudication
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ON 1 AUGUST 2016, Northern Ireland will catch up with the rest of the UK as the new Construction (Design and Management) Regulations (Northern Ireland) 2016 (“CDM (NI) 2016”) come into effect, replacing and updating the regulations of 2007. New regulations were introduced in Great Britain back in April 2015. The aim of CDM (NI) 2016 is to improve health and safety in the industry and to shorten and simplify the regulations. As the Health and Safety Executive NI has said, “virtually everyone involved in a construction project will have legal duties under the new regulations.” As anticipated, CDM (NI) 2016 mirrors the new CDM Regulations in Great Britain very closely, and lessons learned across the pond should help Northern Ireland companies navigate these new waters.
THE PRINCIPAL DESIGNERThe biggest change that the new regulations bring about is the removal of the role of CDM Co-ordinator and introduction of a new role of principal designer. The roles are not like-for-like and there are key differences to be aware of. The principal designer will be solely responsible for co-ordination of health and safety during the pre-construction phase. The thought process behind this is that the appointee is sufficiently embedded in the project team from the earliest stage possible to influence the design. Thus, the principal designer is likely to be the lead architect in most cases. The principal designer must ensure that all designers on the project comply with their duties and any breach of duty by a designer will be a breach by the principal designer
CDM REGULATIONS 2016 –
Are You Ready?also. The principal designer is also responsible for the pre-construction phase plan and health and safety file.
CLIENT RESPONSIBILITYClients now have a greater responsibility for the health and safety arrangements for their projects. These responsibilities can no longer be passed wholesale onto a CDM Co-ordinator or principal contractor to manage. Under Regulation 4(5) the client must ensure that:
Before the construction phase begins, a construction phase plan is drawn up by the contractor if there is only one contractor, or by the principal contractor; andthe principal designer prepares a health and safety file for the project.”
Clients must also check that the principal designer and principal contractor are carrying out their duties and take reasonable steps to satisfy themselves that the principal designer and principal contractor has the “skills, knowledge and experience…necessary to fulfil the role” (Regulation 8(1). Under Regulation 5(3) and 5(4) if the client fails to appoint a principal designer or principal contractor then the client must fulfil their duties instead.
WHICH PROJECTS DOES CDM (NI) 2016 APPLY TO? CDM (NI) 2016 applies to both commercial and domestic projects being carried out in Northern Ireland. The trigger point for the application of the regulations to construction projects has changed slightly and the regulations will now apply when “there is more than one contractor, or if it is reasonably foreseeable that more than one contractor will be working on a project at any time.” (Regulation 5(1)).
DOES NOTIFICATION MATTER ANYMORE?The notification of projects to the Health and Safety Executive for Northern Ireland is now less relevant to the application of the regulations, as CDM (NI) 2016 catches both notifiable and non-notifiable projects. However, the thresholds for notification have changed slightly and should be noted. According to Regulation 6, a project must be notified if it is (a) to last longer than 30 working days and have more than 20 workers working simultaneously at any point in the project or (b) if it will exceed 500 person days.
TRANSITIONAL ARRANGEMENTSThere will be a 12 month transition period which is longer than the 6 months given in the rest of the UK. For any projects involving more than one contractor which commence before 1 August 2016 for which a CDM Co-ordinator has not yet been appointed, the client must appoint a principal designer as soon as practicable (if the construction phase has not yet begun) and if the construction phase has already started, they can appoint a principal designer but there is no legal requirement to do so. Existing projects which commenced prior to 1 August 2016 and which currently have a CDM Co-ordinator, will need to appoint a Principal Designer within 12 months unless the project ends before that date. During the transitional period, the CDM Co-ordinator must fulfil the duties set out in Schedule 5 of the CDM (NI) 2016.
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Quigg Golden were proud to sponsor the Kent Construction Professionals’ annual dinner in June and to show our continued support for CIOB South East. Racing driver, Tiff Needell made it a very enjoyable evening!
CIOB KENT CONSTRUCTION PROFESSIONALS
DINNER
